Hicks: Time to question capital over workers tax model

Michael J. Hicks 10:47 p.m. EDT May 17, 2015

indystar

 

Despite the continued tightening of labor markets, average wages are stalled at 1990s levels. This can be only partially explained by the Great Recession. Something else more worrisome is occurring.

The flat average wages masks the underlying reality that highly educated folks have seen their incomes rise over that time, while poorly educated workers have seen incomes decline. Much of this may be tied to inevitable technological change that favors skilled workers over the unskilled. If so, the role of effective public policy will be limited to helping better educate workers. Alas, there are no limits to ineffective public policy. For this reason, it’s time to ask again whether public policy has played a role in speeding this technological adoption, and whether that has made our labor markets worse. Let me explain.

Businesses combine workers and equipment to provide goods or services. The price of the people is their wages and fringe benefits, and the price of the equipment is the cost of capital — primarily interest rates and taxes. People and machinery are what economists call “gross complements,” which is a jargon-esque way of saying that men and machines work together. So, more capital investment will tend to increase the demand for labor.

Over the long run, capital is a “gross complement” to labor, but individual capital investments and many new innovations are “substitutes” to labor. These substitutes replace expensive skills and expensive workers with machines, reducing the demand for labor in a particular factory or skill. Over the long run, we call this economic growth. Typically the change is sufficiently gradual that workers can adapt. But what if our public policies have mistakenly accelerated this change, making it so rapid that workers in large numbers had no time to learn new skills? That may be what is happening.

Since the run-up to the Y2K bug, interest rates have been kept very low, for very good reasons — potential computer problems, two recessions and wars. These lower interest rates have dramatically reduced the cost of capital, while the cost of labor and their fringe benefits rose. This means that the economy has been through a decade and a half of much reduced capital costs, while labor costs have risen. It would seem almost impossible that this would not have hastened the substitution of capital for labor.

At the state level, taxes on capital have been slashed. Indiana alone forgives taxes on more than $8 billion of new investment a year. This means a reduction in local revenues of perhaps $1 billion per year.

To be clear, we need business investment to grow, but hastening investment past the rate at which free markets would dictate is not necessarily a path to prosperity any more than raising the minimum wage to $20 an hour. For as long as wages have been stagnant, we have in place public policies that heavily favor capital over workers. It is time to question this approach.

Hicks is director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.

from Adicted to info: public servce vs privatesrvc unions

Nick...to your overall point that unionization of public employees is uncalled for because of a lack of profit I would disagree on the basis that profit is only one factor that may lead to an employer abusing workers. Power, along with the gains from political partisanship and nepotism are other potential motivational factors.
Years ago when I worked for the city pressures to contribute to political campains were inappropriately, and in most cases illegally, encouraged by supervisors and politically connected co-workers. Environments like that and ones where there is a preponderance of employees with family or organizational [the Klan, religious, etc] ties created environments that put good workers in precarious positions that contribute to unstable, unsafe and potentially hazardous working conditions.
Unions were just as relevant to correcting those situations as they were child labor laws etc.
Unsafe conditions exist in many government jobs from 1st responders to sanitation workers and those workers have a right to safe working conditions just like someone in the private sector.
The US Postal service has been fined repeatedly over the last year to the tune of 3+ million dollars for violations deemed very dangerous [improper electrical wiring in work areas]. So while nobody has died yet the infractions have been found in so many locations across the country it is just a matter of time. Recently the Inspector General has issued a report condeming the working conditions around the use of DBCS machines that expose workers to common physycal injuries to their back, joints and shoulders. If not for our unions these  situations would be worse.
In the case of many public safety jobs, abuse of employees is also a public safety risk and while whistle blower laws may afford some protection anyone who proceeds without union or legal [at their own cost] advise is foolish to do so.
Any employee... every employee has the right to collective bargaining. Thankfully, most employers treat their employees in a fair manner and unionizing doesn't happen. If anyone is going to say that collective bargaining, or unions are obsolete then I would be interested in how the universe has shifted in the last years because whether the motivation is profit or power workers will always be at a disadvantage against supervisors and organizations whether corporate or poorly run government agencies.

As to Doug's comments: I have worked in union jobs and non-unions jobs both and to tell you the truth I have never met a person who was a thug by virtue of being in the union, generally they would have been a thug in a non-union job or on the streets. To here politicians, etc., constantly refer to food service workers, clerks, teachers and fireman as thugs is repugnant.
I can't address your situation where you work but if you choose to not be in your union then stop complaining. Your union is what you and other workers make it. Its democratic and you have a voice if your a member. It has written rules and you have a voice and a vote if you choose to excercise it. If you choose to not be a member, then you give in to whatever is wrong about it.
A union is just a group of people who pool their resources together to enhance their future or productivity. Strangely enough that's exactly what for-profit corporations are. The difference is that workers are pooling their skills [as opposed to capital] to enhance [stabilize] their future [as opposed to profit], so how can the concept be outdated?


http://www.addictinginfo.com/apps/blog/entries/show/5154456-public-employee-unions-vs-private-sector-unions-

protectionism:

If you feel protectionism is a bad thing, in every degree, then why do we not ‘retaliate’ against those who practice it against us? To many countries that we import from restrict the importation of our goods into their country. If the labor cost of our goods drive the price too high then why do other countries erect artificial [protectionist] barriers to our goods?

DO we need a worldwide union? no, but what we need is union organizing worldwide. It doesn’t have to be a global union to balance the playing field anymore than the many unions in America should be one.

What we need to do in this country is to force our leaders to insist that our trade partners live up to our trade agreements. If Mexico and other countries enforced safety, labor, and environmental regulations as required in the treaties their cost [and wages] would even out the differences and cost of doing business. Just look at Canada; similar rules and regulations. similar labor cost, similar wages, safer products [than China], no child labor, etc. We need to further pressure our leaders to strengthen our treaties to contain language that prevents our partners from using third world labor practices for an advantage over us and the exploitation of their own people.

Fat complainers Sitting on tier butts

Its just amazing to see people who CLAIM to be union members complaining about THEIR union:

About how their money is spent on politicians they don't support, how their union did nothing when they were laid off [blame the idiots that laid you off dummy!], how Dems haven't done this or that.

Well get off your fat asses and get involved. Your leadership is elected BY YOU!

If your dues are going to politicians and you don't get a direct vote then fight to change that within your union and fight to oust the leadership who didn't send it where you wanted, VOTE THEM OUT! If politicians are being supported by membership contributions then DON'T GIVE!

I have encountered very few people who complained about their union that weren't to busy sitting on their butts to get involved. YOU'RE the ones collecting every benefit, complaining and doing nothing. Your the same 'self-defeatist' as the Tea Baggers who ignored what has been happening over the last 30 years and are just now waking-up to it, and like those Tea Baggers you open your eyes to see only the results and not the causes. Like the Tea Baggers you lump all guilt on the party in power and 'bond' with the first dissenter you see. In this case the ousted, but no less complicit opposition, Republicans. The only difference between you and the Tea Baggers is that, as wrong as they are about the causes and solutions, they at least are waking up and getting off their butts!

No longer can the republicans honestly blame long term democratic control of the Congress since they have had significant turns at the head of of the country, majorities in congress and appointments to the judiciary over the last thirty years. They have managed to successfully deflect their share of the blame through the ultra right doomsayers of FOX and right-wing media.

If your truly a union member just keep sitting on your butt and believing the republican family values crap and you'll go down with the rest of us, the working families, and then you might realize the anti middle-class, anti-worker, pro-wall street, pro-billionaire, pseudo-Christian and constitutional revisionist right-wing fooled you big time.

But I doubt it.